Krugman’s blog, 7/23/14

July 24, 2014

There was one post yesterday, “How’s California Doing?”:

The states, said Louis Brandeis, are the laboratories of democracy — although that may not work as well as it used to now that the “I’m not a scientist” wing has taken complete control of the GOP. Still, state experiences can tell the rest of us something. There’s been a lot of talk lately about how the great Kansas tax-cut experiment is doing, namely very badly. But what about the anti-Kansas — California? It’s a state with a Democratic supermajority. Its policies aren’t left-wing in the way Kansas’s are right-wing, but it’s enough of a liberal agenda to have the right frothing at the mouth. So how is it going?

I wrote about the California comeback more than a year ago, to much vitriolic scorn from the usual suspects. But how’s it going now?

Well, David Cay Johnston tells us that job growth remains fast despite predictions of doom from tax hikes. I found myself wondering, however, whether this was just bounceback from an especially severe slump — after all, California was a major housing bubble state, suffered for it, and you would expect a period of relatively fast growth thereafter even if overall performance was lagging the nation.

If you look at the numbers, however, what you see is that while fast job growth has indeed largely reflected recovery from an especially deep slump, at this point California’s performance (blue) since the Great Recession began has fully matched that of the nation (red); that is, there is no sign of growth being hurt by liberal policies or whatever:

Meanwhile, the budget is in good shape, with room for some much-needed spending increases.

Oh, and California — which enthusiastically went about implementing health reform — appears to have cut the number of uninsured by half in the first year of Obamacare.

Is it a miracle? No — or at any rate not unless you consider any deviation from supply-side predictions miraculous. But it’s looking like a pretty solid record.

Blow and Kristof

July 24, 2014

Ms. Collins is off today.  Mr. Blow has a question in “Paul Ryan and His Poverty Prophet:”  Will a new conservative anti-poverty plan, however well-intended, just lead directly to the soup kitchen?  Charles, if ZEGS has anything to do with it that’s probably the desired result.  Mr. Kristof offers “An Idiot’s Guide to Inequality.”  He says if you don’t have time for Thomas Piketty’s comprehensive best seller, here’s a quick five-point take on the gap between the rich and poor.  Here’s Mr. Blow:

After being chastised early this year for proclaiming that there was a “tailspin of culture,” particularly among inner city men, of “not working and just generations of men not even thinking about working or learning the value and the culture of work,” Paul Ryan is going to take another swipe at an anti-poverty proposal.

According to The Wall Street Journal, Ryan will unveil a six-pronged anti-poverty plan — “including ways to address incarceration and education and to encourage employment” — Thursday at the American Enterprise Institute.

Bob Woodson, president of the Center for Neighborhood Enterprise, and a Ryan mentor, told The Journal, “He’s coming up with a new construct, and I’ve encouraged him.” Woodson continued:

“We cannot and should not generalize about poor people. There are the deserving poor and the undeserving poor. It used to be that way, and it became politically incorrect. We are returning to some of the old values that served people very effectively until the welfare reforms of the 1960s.”

Woodson’s comments mine familiar conservative rhetoric, hinting at welfare failure and abuse, pinning further harm on liberal intentions to help, while sidestepping altogether conservative callousness and Republican Party platforms that have sought for decades to reward those at the top of the economic ladder while ignoring those at the bottom.

Woodson is a smart man, a MacArthur genius fellow, and he’s made his work focus on the plight of the poor and troubled neighborhoods. But at the heart of his logic — if, indeed, there is heart in his logic — is a particular strand of tough-love, up-by-the-bootstraps, stop-helping-poor-folks-so-much-because-you’re-hurting-them thinking. Woodson isn’t a neutral arbiter, but a fiercely minimal-government partisan with an open disdain for the civil rights apparatus in this country.

In a RealClear Radio Hour interview in May, Woodson said of the current civil rights movement:

“It has really abandoned the high ground on which it was founded. It has morphed into a race grievance industry, and it’s been hijacked by the gay movement, it’s been hijacked by the Democratic Party. And so it has lost its authenticity.”

He continued: “The civil rights movement, again, has sold its soul to the highest bidder.”

Speaking about the president’s My Brother’s Keeper initiative, Woodson told The Wall Street Journal in April:

“My worry and my fear is that the money and resources will go to the same racial grievance groups, the same members of what I call the poverty Pentagon. They’ll give it to Al Sharpton and the others to do what they’ve been doing for decades, to do what doesn’t work — what in fact is making things worse.”

This idea, espoused by conservative-minded blacks, and aimed with suspicion at the motives of more politically activist blacks — the head-down-and-get-the-work-done crowd vs. the head-high-and-reach-for-the-stars crowd — goes back at least a century, possibly further.

In 1911, Booker T. Washington put it thusly:

“There is another class of coloured people who make a business of keeping the troubles, the wrongs, and the hardships of the Negro race before the public. Having learned that they are able to make a living out of their troubles, they have grown into the settled habit of advertising their wrongs — partly because they want sympathy and partly because it pays. Some of these people do not want the Negro to lose his grievances, because they do not want to lose their jobs.”

Decades earlier, in Washington’s 1895 “Atlanta Compromise” speech of racial appeasement, he beseeched blacks to “cast down your bucket where you are” for the purpose of “cultivating friendly relations with the Southern white man” and for whites to do the same “among the eight millions of Negroes whose habits you know, whose fidelity and love you have tested in days when to have proved treacherous meant the ruin of your firesides.” And he sought to assuage the audience by declaring: “The wisest among my race understand that the agitation of questions of social equality is the extremest folly, and that progress in the enjoyment of all the privileges that will come to us must be the result of severe and constant struggle rather than of artificial forcing.”

This is the kind of thinking from which Ryan’s poverty prophet springs.

According to The Washington Post, Ryan’s “new proposal, called an ‘Opportunity Grant,’ would begin on a pilot basis. It would consolidate a range of safety-net programs — from food stamps to housing vouchers — into a single grant offered to states.”

But, make no mistake: “opportunity” is the new “block.” And, block grants to states don’t have a great track record where poor people are concerned.

First, let’s set the stage: Some of the poorest states in the country consistently vote for Republican presidential candidates, have Republican governors and Republican control of the statehouses. Many of these are the same states that refused to expand Medicaid under the Affordable Care Act, which would have extended health care to more low-income Americans. What could possibly go wrong?

Second, let’s look at the evidence: According to a 2012 report by the Center on Budget and Policy Priorities, the replacement of the Aid to Families With Dependent Children program “with the Temporary Assistance for Needy Families (TANF) block grant under the 1996 welfare law” provides a “cautionary tale about the dangers of converting basic safety-net programs to block grants” because it makes “the cash assistance safety net for the nation’s poorest families with children” grow “weaker, not stronger.”

According to the center:

“In 1995, for every 100 families with children living in poverty, 68 received cash assistance through AFDC to help meet basic needs; by 2010, for every 100 families that were poor, only 27 families received such assistance. Moreover, for families still receiving cash assistance, median benefit levels have plummeted — falling 20 percent since TANF’s creation (after adjusting for inflation).”

We have to look beyond the catchphrase dance — poverty prophet, grievance industry, undeserving poor — and be reminded of the data. Ryan and Woodson may well come forth with a plan with good intentions, but a wider road to the soup kitchen may just as well be paved with those intentions.

Now here’s Mr. Kristof:

We may now have a new “most unread best seller of all time.”

Data from Amazon Kindles suggests that that honor may go to Thomas Piketty’s “Capital in the Twenty-First Century,” which reached No. 1 on the best-seller list this year. Jordan Ellenberg, a professor of mathematics at the University of Wisconsin, Madison, wrote in The Wall Street Journal that Piketty’s book seems to eclipse its rivals in losing readers: All five of the passages that readers on Kindle have highlighted most are in the first 26 pages of a tome that runs 685 pages.

The rush to purchase Piketty’s book suggested that Americans must have wanted to understand inequality. The apparent rush to put it down suggests that, well, we’re human.

So let me satisfy this demand with my own “Idiot’s Guide to Inequality.” Here are five points:

First, economic inequality has worsened significantly in the United States and some other countries. The richest 1 percent in the United States now own more wealth than the bottom 90 percent. Oxfam estimates that the richest 85 people in the world own half of all wealth.

The situation might be tolerable if a rising tide were lifting all boats. But it’s lifting mostly the yachts. In 2010, 93 percent of the additional income created in America went to the top 1 percent.

Second, inequality in America is destabilizing. Some inequality is essential to create incentives, but we seem to have reached the point where inequality actually becomes an impediment to economic growth.

Certainly, the nation grew more quickly in periods when we were more equal, including in the golden decades after World War II when growth was strong and inequality actually diminished. Likewise, a major research paper from the International Monetary Fund in April found that more equitable societies tend to enjoy more rapid economic growth.

Indeed, even Lloyd Blankfein, the chief executive of Goldman Sachs, warns that “too much … has gone to too few” and that inequality in America is now “very destabilizing.”

Inequality causes problems by creating fissures in societies, leaving those at the bottom feeling marginalized or disenfranchised. That has been a classic problem in “banana republic” countries in Latin America, and the United States now has a Gini coefficient (a standard measure of inequality) approaching some traditionally poor and dysfunctional Latin countries.

Third, disparities reflect not just the invisible hand of the market but also manipulation of markets. Joseph Stiglitz, the Nobel Prize-winning economist, wrote a terrific book two years ago, “The Price of Inequality,” which is a shorter and easier read than Piketty’s book. In it, he notes: “Much of America’s inequality is the result of market distortions, with incentives directed not at creating new wealth but at taking it from others.”

For example, financiers are wealthy partly because they’re highly educated and hardworking — and also because they’ve successfully lobbied for the carried interest tax loophole that lets their pay be taxed at much lower rates than other people’s.

Likewise, if you’re a pharmaceutical executive, one way to create profits is to generate new products. Another is to lobby Congress to bar the government’s Medicare program from bargaining for drug prices. That amounts to a $50 billion annual gift to pharmaceutical companies.

Fourth, inequality doesn’t necessarily even benefit the rich as much as we think. At some point, extra incomes don’t go to sate desires but to attempt to buy status through “positional goods” — like the hottest car on the block.

The problem is that there can only be one hottest car on the block. So the lawyer who buys a Porsche is foiled by the C.E.O. who buys a Ferrari, who in turn is foiled by the hedge fund manager who buys a Lamborghini. This arms race leaves these desires unsated; there’s still only one at the top of the heap.

Fifth, progressives probably talk too much about “inequality” and not enough about “opportunity.” Some voters are turned off by tirades about inequality because they say it connotes envy of the rich; there is more consensus on bringing everyone to the same starting line.

Unfortunately, equal opportunity is now a mirage. Indeed, researchers find that there is less economic mobility in America than in class-conscious Europe.

We know some of the tools, including job incentives and better schools, that can reduce this opportunity gap. But the United States is one of the few advanced countries that spends less educating the average poor child than the average rich one. As an escalator of mobility, the American education system is broken.

There’s still a great deal we don’t understand about inequality. But whether or not you read Piketty, there’s one overwhelming lesson you should be aware of: Inequality and lack of opportunity today constitute a national infirmity and vulnerability — and there are policy tools that can make a difference.

Krugman’s blog, 7/22/14

July 23, 2014

There was one post yesterday, “Debt Disaster Dead-Enders:”

I got some correspondence from people telling me to read Rob Portman’s op-ed in the WSJ, intended to refute the growing evidence that the budget deficit has been grossly overrated as an issue. And it is an interesting piece — it’s a very good illustration both of the desperate desire to see a debt crisis, and what happens when someone (Portman, or more likely the staffer who wrote it) tries to be a Very Serious Person without actually understanding the numbers or having followed any of the analysis.

One thing you need to know is that none of Portman’s numbers refer to the CBO‘s baseline scenario; instead they refer to a much more pessimistic alternate scenario. That’s something he should have shared with readers.

And what you should know about that alternate scenario is that well over half of the projected spending rise he complains about has nothing to do with entitlements; it’s about rising interest payments, because the alternate scenario both assumes that spending will be higher and revenue lower than in the baseline, and that nothing will be done to remedy this situation, so that debt grows without limit. Oh, and those interest payments greatly overstate the real burden of debt in a growing economy with inflation.

But the main thing that struck me was the policy recommendations, written as if he knows nothing about the ongoing discussion of these issues over the past decade and more.

Portman wants us to raise the Medicare and Social Security ages. But raising the Medicare age doesn’t save money, and the Social Security age is already on an upward track to 67 — while life expectancy at age 65 has risen very little for the bottom half of workers.

He also wants means-testing. But Social Security is already de facto means-tested, with a very nonlinear relationship of benefits to wages; meanwhile, means-testing Medicare would actually cost money, because it would force people into more expensive private insurance. Oh, and if you’re worried about the incentive effects of higher taxes, means-testing is actually a big source of disincentives — the highest effective marginal tax rates in America are on lower-income workers who lose benefits as their earnings increase.

For sure we need serious efforts to control health-care costs — which we seem to be getting in Medicare, but face relentless Republican demagoguery.

Finally, whenever someone warns about the supposedly unsupportable costs of entitlements decades into the future, you should ask why, exactly, it’s urgent that we solve that conjectural future problem now — and why it has any bearing at all on current fiscal issues. Don’t say that it’s obvious; it isn’t, and in fact deficit scolds bob and weave when confronted with that question.

But the deficit scolds do love their looming disaster, and they love making tough proposals that someone always involve sacrifices by the little people.

Oh, life is good!

July 23, 2014

God is in his heaven, and all is right with the world.  There is nothing to torture ourselves with this morning.  Both MoDo and The Moustache of Wisdom are off.  Happy days are here again…

Krugman’s blog, 7/21/14

July 22, 2014

There were two posts yesterday.  The first was “Asymmetrical Doctrines (Vaguely Wonkish):”

Are Keynesians and market monetarists symmetric, both in their doctrines and in their political position? Nick Rowe says yes; Simon Wren-Lewis says no. Simon is right here, but in fact for more reasons than he gives.

This all started with me saying that the market monetarists have no resonance in the modern conservative movement. Nick says that this is equally true of “fiscalists”, who haven’t managed to get traction with governments, even leftish ones, either. What’s the difference?

As Simon says, one big difference is that people like me are eclectic, urging that multiple policy tools be brought to bear — and willing to accept second-best policies if that’s what is available. We’re all for quantitative easing, even if there are some doubts about its effectiveness, in a world where fiscal austerity is happening whether you like it or not. This is very different from the MM insistence that fiscal policy has no role, and that austerity has no effect because central banks (they claim) could offset it, whether or not they really do.

But there’s also a big difference in the intellectual roles of MM on the right and Keynes on the left.

Talk with Barack Obama, and you’ll find that he has a basically Keynesian view of the world. It may have wobbled a bit in the past, at times when he seemed to buy into the Confidence Fairy, but it’s still his basic outlook — and his aides are very much IS-LM macro types. True, they haven’t gone all out to push for fiscal expansion in the face of opposition (but remember the payroll tax cut), but that’s mainly a political judgement on their part. It’s not a fundamental difference in worldview from friendly economists.

Contrast this with Republican leaders, who get their macroeconomics from Hayek and Ayn Rand, and are clearly liquidationist; it’s not that they don’t take advice from MM, they’re actively hostile to its very concepts.

That’s what I mean when I say that MM is homeless, in a way that my tribe isn’t.

Yesterday’s second post was “Yes, We Have No Banana:”

Noah Smith has a funny piece on the hermetic system that is Austrian economics, with its multilayered defenses against any kind of criticism. What gets me in particular, because I’ve noticed it a lot lately, is this:

3. “Inflation” doesn’t mean “a rise in the general level of consumer prices,” it means “an increase in the monetary base”, so QE is inflation by definition.

So when Austrians were predicting runaway inflation, they didn’t actually mean consumer prices?

OK, you know that if the CPI had soared, they would have claimed vindication. But the main point is that nobody else cares about the monetary base, or at any rate they care about it only to the extent that it was presumed to say something about future rises in the CPI. Insisting that the term “inflation” means something else in your private language is just pathetic.

But maybe it would have helped, five or six years ago, to have pinned Austrian down on what they thought would happen to something else; following Alfred Kahn, they could have called a general rise in the CPI a banana. Were they predicting a banana? Of course they were. And they were wrong.

Cohen and Nocera

July 22, 2014

Bobo and Bruni are off today.  In “The Suns of August” Mr. Cohen says bodies rot, looters roam, and the Russian-enabled downing of Flight 17 marks the nadir of the West.  Mr. Nocera has a question:  “Did Dodd-Frank Work?”  He says we really have no way of knowing whether “too big to fail” is still with us until we have another crisis.  Here’s Mr. Cohen:

A century on from World War I, nobody wants the guns of August.

Yet it must be asked if waiting years for the evasive conclusions of an official investigation into the fate of Malaysia Airlines Flight 17 is better than acting now on what we already know: That the Boeing 777 with 298 people on board was shot down by a missile from a Russian-made SA-11 antiaircraft system fired from an area of eastern Ukraine controlled by Russian-backed separatists, Russian mercenaries and Russian agents. A half-drunk Ukrainian peasant with a 1950s-era rifle doesn’t shoot down a plane at 33,000 feet.

An “enormous amount of evidence,” in Secretary of State John Kerry’s words, points to Russian provision of SA-11 systems and training. The Ukrainian government has damning audio and images that capture the crime. In June, a Ukrainian cargo plane landing in the area was hit with shoulder-fired missiles, killing 49 people. This month, another cargo plane flying at 22,000 feet was hit by a missile. Rocket science is not required.

President Vladimir Putin of Russia has been playing with fire. His irredentism has made him a hero in Russia. It has endangered the world. Crimea was the swaggering precedent to this crime. The shooting down of Malaysia Airlines Flight 17 amounts to an act of war. It was impromptu perhaps, but still. Dutch corpses have rained down on the sunflowers and cornfields of eastern Ukraine, to be defiled even in death, 193 innocent Dutch souls dishonored by the thugs of the Donetsk People’s Republic.

“This is murder, mass murder. Let’s call it what it is,” said Julian Lindley-French, a defense analyst who lives in the small Dutch village of Alphen. “Shock is turning to anger here,” he told me, “and that anger will resonate in the coming weeks. This is the beginning of a period of complex torture for the Netherlands.”

The Dutch response has been of tip-toeing deference to Moscow. As for the European Union, it has been near-nonexistent. When crisis comes, Europe vanishes — the ghost that slithers away. The West has become an empty notion. The Dutch trade a lot with Russia. Europe floats along in a bubble of quasi pacifism. Better to be bullied than belligerent. Nobody wants the guns of August.

“Swift recovery of the victims’ remains is now an absolute necessity and our highest priority,” Mark Rutte, the Dutch prime minister, said in a statement. “I am shocked by the images of completely disrespectful behavior at this tragic place.” He spoke to Putin to express his outrage.

That was pretty much it. Bodies rot in the sun for four days. They are stashed in plastic bags in refrigerated railroad cars at a fly-infested station before finally moving. The black box is a fungible bargaining chip. Louts go looting. It’s a free-for-all! Official investigation teams are barred at the perimeter. Putin spins implausible yarns robed in ghastly official formulas. His plausible deniability is utterly implausible.

A Dutch writer, Sidney Vollmer, addressed a bitter letter to Rutte thanking him for preserving the moral high ground of the Dutch, for “not rushing in for a bunch of rotting corpses” as “their wallets and iPhones make it all the way” to Moscow. The corpses, anyway, “will vanish into the fog of war” and, as everyone knows, “we need Gazprom.”

Dutch passivity has a name: the Srebrenica syndrome. It is becoming the Europe syndrome.

This mass murder is an outrage that should not stand. Falling military budgets have reduced the Dutch special forces to a paltry remnant. Russia would veto any United Nations Security Council Resolution authorizing force for a limited mission to recover the bodies and the evidence. But Ukraine, on whose territory the debris and dead lie, would support it. The American, British, Dutch and Australian governments should set an ultimatum backed by the credible threat of force demanding unfettered access to the site. Putin’s Russia must not be permitted to host the 2018 World Cup. A Western priority must be to transform the Ukrainian army into a credible force.

It won’t happen. Europe is weak. Obama’s America is about retrenchment, not resolve. Putin must be appeased. Nobody is about to call his bluff. The Putin-pacifiers have many arguments. Send forces into Ukraine and you prove the Russian argument that the West has designs on it. Besides, who wants World War III?

The self-styled Donetsk People’s Republic stares down Mark Rutte. The deathly poppy fields of 1914 give way to the deathly sunflower fields of 2014. Dutch flowers wing around the globe, still, a thriving trade.

A reader, Katherine Holden, sent me a poem called “The Flowering of Death.” She writes: “Velvet leaves and sturdy stems transient graves for children mothers lovers doctors teachers fathers students artists siblings seekers fallen from the darkening sky. Flesh-fed rain.”

Everyone wants the suns of August. Summer vacations rule. Nobody wants the guns — and damn the bigger guns appeasement may bring.

This article was updated to reflect news developments.

Yeah.  Let’s rattle the sabers and swing our dicks.  That will be helpful…  Here’s Mr. Nocera:

Ralph Nader has written a new book, entitled “Unstoppable: The Emerging Left-Right Alliance to Dismantle the Corporate State.” If you spend any time looking into the current state of affairs with the Dodd-Frank Act — Monday was the fourth anniversary of the law enacted to ensure that the country never suffers through another financial crisis like the one in 2008 — you’d have to say that he has a point.

There are many aspects of the law on which Democrats and Republicans disagree. But there is one area in which the two sides are largely in agreement: “Too Big to Fail” is still with us.

“In no way, shape or form does the Dodd-Frank Act end too big to fail,” said Representative Jeb Hensarling, the Texas Republican who is chairman of the House Financial Services Committee.

“The chances of another financial crisis will remain unacceptably high as long as there are financial institutions that are ‘too big to fail,’ ” wrote Senator Elizabeth Warren, a Massachusetts Democrat, in an opinion article she co-wrote with, among others, Republican Senator John McCain.

Dodd-Frank, of course, was supposed to end “Too Big to Fail,” the catchphrase for a financial institution whose collapse had the potential to bring down the entire financial system. That prospect is why, less than a month after the bankruptcy of Lehman Brothers, the government handed billions of dollars to the big banks to help stabilize them.

In some ways, eliminating the possibility of future bank bailouts was the whole point of Dodd-Frank. Partly this was for populist reasons: Americans were outraged that the banks were bailed out, while the country got the worst of the Great Recession.

But it was also just good public policy. Karen Petrou, the managing partner of Federal Financial Analytics, told me that if the too-big-to-fail provisions in the law worked, “the rest of the law wouldn’t matter that much because the market would discipline the institutions.” But, she added, “I don’t think the Federal Reserve or the F.D.I.C.” — the Federal Deposit Insurance Corporation — “is prepared to handle a systemic crisis for one of the big banks.”

To be sure, the Treasury Department insists that the days of “Too Big to Fail” are over. In a recent speech, Mary John Miller, the Treasury’s undersecretary for domestic finance, said, “No financial institution, regardless of its size, will be bailed out by taxpayers again.” She added, “Shareholders of failed companies will be wiped out; creditors will absorb losses; culpable management will not be retained and may have their compensation clawed back.” But the markets don’t believe it, and neither do most people who pay attention to Dodd-Frank.

There are two essential problems. The first is that it is hard to imagine that the government wouldn’t blink, as it did in 2008. “Does anyone really believe that if any of the big banks were about to go down, that the government would allow that to happen?” asked Dean Baker, a co-founder of the progressive Center for Economic and Policy Research. “No.”

The second problem is that it is difficult to envision how the law itself would “resolve” these institutions. In one part of Dodd-Frank, the banks are required to write “living wills,” laying out how they could wind down without causing a financial catastrophe. Although they are now on their third round of living wills, the documents are thousands of pages, and the government hasn’t yet told them whether the second round of living wills, filed a year or so ago, passed muster.

The law also says that if the regulators find the living wills too unwieldy and difficult to execute, it can force banks and financial institutions to shed assets and simplify their structures to make them easier to wind down. Warren and other lawmakers have pointed to this provision as something that could — if regulators pushed for it — force the banks to look more like they did pre-deregulation: with a division between commercial banks and investment banks.

Meanwhile, there is another part of Dodd-Frank that calls for banks to wind down through a process called orderly liquidation. In this scenario, the government puts the functioning parts of the bank into a new “bridge financial company,” and forces the private sector — shareholders, certain creditors, even assessments on other financial institutions if it comes to that — to take losses. Although the Treasury Department insists that the law forbids public money from being used, there are a lot of economists who have a hard time believing that taxpayer money would not somehow be used if things got really bad.

One person who does believe is Sheila Bair, the former chairwoman of the F.D.I.C. “I do think they could handle a big bank failure,” she told me. “It would be messy and difficult, but they could do it.”

Which is the ultimate problem: We have no way of knowing whether “too big to fail” still exists until we have another crisis. Let’s just hope we don’t have to find out anytime soon.

Krugman’s blog, 7/20/14

July 21, 2014

There was one post yesterday, “The Horror, The Horror:”

I happened to click on this John Mauldin post, in which he informs us that GDP is a Keynesian plot, and that without it Hayek would of course have won the macroeconomic debate. Oh, kay — but that’s not the horror. It’s this:

We have now made the Newt Gingrich and Niall Ferguson Strategic Investment Conference videos available. … This week, we are happy to provide even more material from this incredibly informative event. Newt Gingrich and Niall Ferguson were the two highest rated presenters at a conference packed with some of the finest economic and investment minds in the world.

Oh, boy.

Krugman, solo

July 21, 2014

Mr. Blow is off today, so Prof. Krugman has the floor solo.  In “The Fiscal Fizzle” he says the deficit scolds are still going at it, even though the whole panic turned out to be a false alarm.  Here he is:

For much of the past five years readers of the political and economic news were left in little doubt that budget deficits and rising debt were the most important issue facing America. Serious people constantly issued dire warnings that the United States risked turning into another Greece any day now. President Obama appointed a special, bipartisan commission to propose solutions to the alleged fiscal crisis, and spent much of his first term trying to negotiate a Grand Bargain on the budget with Republicans.

That bargain never happened, because Republicans refused to consider any deal that raised taxes. Nonetheless, debt and deficits have faded from the news. And there’s a good reason for that disappearing act: The whole thing turns out to have been a false alarm.

I’m not sure whether most readers realize just how thoroughly the great fiscal panic has fizzled — and the deficit scolds are, of course, still scolding. They’re even trying to spin the latest long-term projections from the Congressional Budget Office — which are distinctly non-alarming — as somehow a confirmation of their earlier scare tactics. So this seems like a good time to offer an update on the debt disaster that wasn’t.

About those projections: The budget office predicts that this year’s federal deficit will be just 2.8 percent of G.D.P., down from 9.8 percent in 2009. It’s true that the fact that we’re still running a deficit means federal debt in dollar terms continues to grow — but the economy is growing too, so the budget office expects the crucial ratio of debt to G.D.P. to remain more or less flat for the next decade.

Things are expected to deteriorate after that, mainly because of the impact of an aging population on Medicare and Social Security. But there has been a dramatic slowdown in the growth of health care costs, which used to play a big role in frightening budget scenarios. As a result, despite aging, debt in 2039 — a quarter-century from now! — is projected to be no higher, as a percentage of G.D.P., than the debt America had at the end of World War II, or that Britain had for much of the 20th century. Oh, and the budget office now expects interest rates to remain fairly low, not much higher than the economy’s rate of growth. This in turn weakens, indeed almost eliminates, the risk of a debt spiral, in which the cost of servicing debt drives debt even higher.

Still, rising debt isn’t good. So what would it take to avoid any rise in the debt ratio? Surprisingly little. The budget office estimates that stabilizing the ratio of debt to G.D.P. at its current level would require spending cuts and/or tax hikes of 1.2 percent of G.D.P. if we started now, or 1.5 percent of G.D.P. if we waited until 2020. Politically, that would be hard given total Republican opposition to anything a Democratic president might propose, but in economic terms it would be no big deal, and wouldn’t require any fundamental change in our major social programs.

In short, the debt apocalypse has been called off.

Wait — what about the risk of a crisis of confidence? There have been many warnings that such a crisis was imminent, some of them coupled with surprisingly frank admissions of disappointment that it hadn’t happened yet. For example, Alan Greenspan warned of the “Greece analogy,” and declared that it was “regrettable” that U.S. interest rates and inflation hadn’t yet soared.

But that was more than four years ago, and both inflation and interest rates remain low. Maybe the United States, which among other things borrows in its own currency and therefore can’t run out of cash, isn’t much like Greece after all.

In fact, even within Europe the severity of the debt crisis diminished rapidly once the European Central Bank began doing its job, making it clear that it would do “whatever it takes” to avoid cash crises in nations that have given up their own currencies and adopted the euro. Did you know that Italy, which remains deep in debt and suffers much more from the burden of an aging population than we do, can now borrow long term at an interest rate of only 2.78 percent? Did you know that France, which is the subject of constant negative reporting, pays only 1.57 percent?

So we don’t have a debt crisis, and never did. Why did everyone important seem to think otherwise?

To be fair, there has been some real good news about the long-run fiscal prospect, mainly from health care. But it’s hard to escape the sense that debt panic was promoted because it served a political purpose — that many people were pushing the notion of a debt crisis as a way to attack Social Security and Medicare. And they did immense damage along the way, diverting the nation’s attention from its real problems — crippling unemployment, deteriorating infrastructure and more — for years on end.

Krugman’s blog, 7/19/14

July 20, 2014

There was one post yesterday, “Always Inflation Somewhere:”

Whenever you point out that the hyperinflation the usual suspects have been predicting for the past 6 years hasn’t materialized, you get a rash of comments declaring that yes it has, the government is just lying about the statistics. One answer — aside from come on, how do you think that works? — is that independent measures, like the Billion Price Index, aren’t very different from the official index. Still, people will point to the price of something that has gone up as evidence that we have lots of inflation.

Not that I think such people can be budged, but it is important to realize that relative prices are always shifting around, and that some prices inevitably go up more than the average. As the figure shows, if you go back to the beginning of the Great Recession, food prices have risen more than the overall CPI (although hyperinflation it isn’t), but car prices have risen more slowly (and high-tech stuff has, of course, gotten much cheaper).

And what about Shadowstats, which claims that inflation is much higher than the government lets on? A subscription costs $175 — the same as 8 years ago.

The Pasty Little Putz, Dowd, Friedman and Kristof

July 20, 2014

Mr. Bruni is off today.  In “The Parent Trap” The Putz tells us that you must over your children or the neighborhood busybodies and the police may step in.  MoDo, in “A Popular President,” sniffs that Bill — not Barry or Hillary — has the heat.  Standard MoDo crap, but as “Debra” formerly from NYC points out in her comment “… quoting Bill O’Reilly answering Geraldo Rivera to make your point is really….well, I don’t know how to describe that one.”  It’s called grasping for straws, Debra.  The Moustache of Wisdom is banging on his “sharing economy” tin drum again.  In “And Now For a Bit of Good News …” he babbles that from taxi rides to overnight stays, the sharing economy is growing rapidly, and creating a village where your reputation is everything.  “Claus Gehner” from Seattle and Munich had this to say in the comments:  “This column again shows Mr. Friedman’s somewhat simplistic cheerleading for the “hyper-connected world” and the wonders of social media. After being shown wrong with his predictions of all the wonderful things social media would do for the “Arab Spring”, he is still on a roll.”  Mr. Kristof asks “Who’s Right and Wrong in the Middle East?”  He says with Israeli troops in Gaza again, there’s a symmetry in the rhetoric by partisans on both sides of the conflict.  Here’s The Putz:

When I was about 9 years old, I graduated to a Little League whose diamonds were a few miles from our house, in a neighborhood that got rougher after dark. After one practice finished early, I ended up as the last kid left with the coach, waiting in the gloaming while he grumbled, looked at his watch and finally left me — to wait or walk home, I’m not sure which.

I started walking. Halfway there, along a busy road, my father picked me up. He called my coach, as furious as you would expect a protective parent to be; the coach, who probably grew up having fistfights in that neighborhood, gave as good as he got; I finished the season in a different league.

Here are two things that didn’t happen. My (lawyer) father did not call the police and have the coach arrested for reckless endangerment of a minor. And nobody who saw me picking my way home alone thought to call the police on my parents, or to charge them with neglect for letting their child slip free of perfect safety for an hour.

Today they might not have been so lucky. For instance, they might have ended up like the Connecticut mother who earned a misdemeanor for letting her 11-year-old stay in the car while she ran into a store. Or the mother charged with “contributing to the delinquency of a minor” after a bystander snapped a photo of her leaving her 4-year-old in a locked, windows-cracked car for five minutes on a 50 degree day. Or the Ohio father arrested in front of his family for “child endangerment” because — unbeknown to him — his 8-year-old had slipped away from a church service and ended up in a nearby Family Dollar.

Or (I’m just getting warmed up) like the mother of four, recently widowed, who left her children — the oldest 10, the youngest 5 — at home together while she went to a community-college class; her neighbor called the police, protective services took the kids, and it took a two-year legal fight to pry them back from foster care. Or like the parents from two families who were arrested after their girls, two friends who were 5 and 7, cut through a parking lot near their houses — again without the parents’ knowledge — and were spotted by a stranger who immediately called the police.

Or — arriving at this week’s high-profile story — like Debra Harrell, an African-American single mother in Georgia, who let her 9-year-old daughter play in a nearby park while she worked a shift at McDonald’s, and who ended up shamed on local news and jailed.

Some of these cases have been reported, but some are first-person accounts, and in some the conduct of neighbors and the police and social workers may be more defensible than the anecdote suggests.

But the pattern — a “criminalization of parenthood,” in the words of The Washington Post’s Radley Balko — still looks slightly nightmarish, and there are forces at work here that we should recognize, name and resist.

First is the upper-class, competition-driven vision of childhood as a rigorously supervised period in which unattended play is abnormal, risky, weird. This perspective hasn’t just led to “the erosion of child culture,” to borrow a quote from Hanna Rosin’s depressing Atlantic essay on “The Overprotected Kid”; it has encouraged bystanders and public servants to regard a deviation from constant supervision as a sign of parental neglect.

Second is the disproportionate anxiety over child safety, fed by media coverage of every abduction, every murdered child, every tragic “hot car” death. Such horrors are real, of course, but the danger is wildly overstated: Crime rates are down, abductions and car deaths are both rare, and most of the parents leaving children (especially non-infants) in cars briefly or letting them roam a little are behaving perfectly responsibly.

Third is an erosion of community and social trust, which has made ordinary neighborliness seem somehow unnatural or archaic, and given us instead what Gracy Olmstead’s article in The American Conservative dubs the “bad Samaritan” phenomenon — the passer-by who passes the buck to law enforcement as expeditiously as possible. (Technology accentuates this problem: Why speak to a parent when you can just snap a smartphone picture for the cops?)

And then finally there’s a policy element — the way these trends interact not only with the rise of single parenthood, but also with a welfare system whose work requirements can put a single mother behind a fast-food counter while her kid is out of school.

This last issue presents a distinctive challenge to conservatives like me, who believe such work requirements are essential. If we want women like Debra Harrell to take jobs instead of welfare, we have to also find a way to defend their liberty as parents, instead of expecting them to hover like helicopters and then literally arresting them if they don’t.

Otherwise we’ll be throwing up defenses against big government, while ignoring a police state growing in our midst.

Next up we have MoDo:

The thing about him is, he just keeps going.

At 67, he continues to be, as Anna Quindlen once wrote, like one of those inflatable toys with sand weighting the bottom — you knock him over and he pops back up.

As Hillary stumbles and President Obama slumps, Bill Clinton keeps getting more popular.

The women, the cheesy behavior, the fund-raising excesses, the self-pity, the adolescent narcissism, the impeachment, the charges of racially tinged insults against Obama in 2008, the foundation dishabille — all that percussive drama has faded to a mellow saxophone riff for many Americans.

A recent Wall Street Journal/NBC News/Annenberg center poll showed that Clinton was, by a long shot, the most admired president of the last quarter-century. A new YouGov poll finds that among the last eight elected presidents, Clinton is regarded as the most intelligent and W. the least.

(Clinton and W. both should have been more aggressive in catching Osama. But certainly, if Clinton had been president post-9/11, there would have been no phony invasion of Iraq, and Katrina would have elicited more empathy.)

A Washington Post/ABC News poll in May found Bill’s approval ratings rebounding to the highest they had been since early in his presidency.

Even some who used to mock his lip-biting have decided that warmth, even if it’s fake at times, beats real chilliness.

Speaking at the 92nd Street Y last month, Bill O’Reilly was asked by Geraldo Rivera whether the country would have been better off electing Hillary instead of Barack Obama.

“With Hillary you get Bill,” O’Reilly replied. “And Bill knows what’s going on. You may not like him but he knows what’s going on. Hillary doesn’t understand how the world works.”

Except for L.B.J. and Nixon, ex-presidents tend to grow more popular. Yet Bill Clinton, wandering the global stage as a former president who may return to the White House as the husband of a president, plays a unique role in American history. (Newly released Clinton library documents revealed that Bill, believing it punchier, preferred to use “America” and “Americans” in speeches rather than “the United States” and “people of the United States.”)

But why is he burning brighter now, when the spotlight should be on his successor and his wife?

Do we miss the days when the National Debt Clock was retired? Are we more accepting that politicians have feet of clay? Are we tired of leaders who act as burdened as Sisyphus? Do we miss having a showman and a show?

“Maybe they admire his vegan body,” said David Axelrod impishly, before replying seriously: “He’s the most seductive character that we’ve seen in American politics in our lifetime. He just has this unbelievably resilient and seductive personality.”

James Carville noted dryly: “People are confused. They don’t know which one they like more, the peace or the prosperity.” He calls Clinton the “anti-Putin,” someone who did not exercise power to harm people but to help them.

42 had greater strengths and greater weaknesses than the average pol.

Rand Paul accused Clinton of “predatory” behavior. Liz Cheney told Politico’s Mike Allen that she trusts Hillary more than she trusts Bill, implying that was because of Monica Lewinsky. And Todd “legitimate rape” Akin defended himself on Fox News this past week by hitting Clinton’s “long history of sexual abuse and indecency.”

But G.O.P. pollster Kellyanne Conway said the words “Monica” and “liberal” rarely come up when she polls about Bill Clinton. The words “global” and “philanthropic” come up. She said that after Clinton, people “shrugged their shoulders at what had once made them raise their eyebrows.”

“He was a good ambassador for the baby boomer generation,” she said. “Who hasn’t screwed up? Who hasn’t had a third and fourth chance?”

Perhaps, given the tribal wars in Washington and dark tides loose in the world, there’s a longing for Bill’s better angels: the Happy Warrior desire to get up every day and go at it, no matter how difficult; the unfailing belief that in the future things will be better; the zest in the hand-to-hand combat of politics and policy, the reaching out to Newt Gingrich and other Republicans — even through government shutdowns and impeachment — and later teaming up with Bush Senior. “There’s a suspicion among a lot of people that Obama doesn’t much care for politics,” Carville said. “It’s amazing that a man can be so successful at something he really doesn’t like. It’s like if you found out that Peyton Manning didn’t like to play football.”

Mike Murphy, the Republican strategist, said that Obama’s fade has been “the best Clinton rehab.”

Murphy noted the irony that first, Bill had to use his extroverted personality, his talent as Explainer in Chief and his “empathy ray gun” to help Obama get re-elected, and now he will need to use those skills to push another clinical, cerebral candidate — his wife — up the hill.

“The one guy he can’t help elect is himself because of that pesky Constitution,” Murphy said. “But of course, that’s what he’d love to do.”

Next up we have The Moustache of Wisdom:

From Ukraine to the Middle East, some bad actors — Hamas, Vladimir Putin and Israeli settlers to name but a few — are trying to bury the future with the past and divide people. Instead of focusing on them even more, I prefer to write about a company that is burying the past with the future, and actually bringing strangers together.

Last year, I interviewed Brian Chesky, one of the co-founders of Airbnb.com, about the emerging sharing economy, led by companies like the on-demand taxi app Uber and Airbnb, which provides a platform for people to rent their spare rooms, homes, castles and yurts to strangers with the same ease you can book a room at Marriott. We just got together again, and Chesky laid out the growth spurt his company has experienced in the last 12 months — a spurt so fast that it’s telling you this new sharing economy is the real deal and will increasingly be a source of income for more and more people.

Chesky offered this sample of Airbnb’s latest metrics:

• “We have over 3,000 castles, 2,000 treehouses, 900 islands and 400 lighthouses available to book on the site. On a recent night, over 100 people were staying in yurts.”

• “Fifty-six percent of guests staying on Airbnb on a recent weekend were doing so for their first time. Last week, guests left reviews for hosts in 42 different languages. Over 17 million total guests have stayed on Airbnb. It took Airbnb nearly four years to get its first million guests. Now one million guests stay on Airbnb every month.”

• “Roughly 120,000 people stayed in Brazil in Airbnb-rented rooms for the World Cup, including travelers from over 150 different countries. Airbnb hosts in Brazil earned roughly $38 million from reservations during the World Cup. The average host in Rio earned roughly $4,000 during the monthlong tournament — about four times the average monthly salary in Rio. And 189 German guests stayed with Brazilians on the night of the Brazil/Germany World Cup semifinal match.”

• July 5, 2014, was Airbnb’s biggest night ever. “Its platform hosted over 330,000 total guests staying around the world — in thousands of cities and over 160 different countries,” said Chesky. In Paris, nearly 20,000 people were staying in Airbnb rooms on July 5. In 2012, that number was under 4,000.

What’s the secret? Who knew so many people would rent out rooms in their homes to strangers and that so many strangers would want to stay in other people’s spare bedrooms?

The short answer is that Airbnb understood that the world was becoming hyperconnected — meaning the technology was there to connect any renter to any tourist or businessperson anywhere on the planet. And if someone created the trust platform to bring them together, huge value could be created for both parties. That was Airbnb’s real innovation — a platform of “trust” — where everyone could not only see everyone else’s identity but also rate them as good, bad or indifferent hosts or guests. This meant everyone using the system would pretty quickly develop a relevant “reputation” visible to everyone else in the system.

Take trusted identities and relevant reputations and put them together with the Internet and suddenly you have 120,000 people staying in Brazilians’ homes instead of hotels at the World Cup. Obviously, there are exceptions and bad apples, and Airbnb provides $1 million in damage coverage for such cases, but the numbers say the system is working for a lot of people.

“I think we’re going to move back to a place where the world is a village again — a place where a lot of people know each other and trust each other … and where everyone has a reputation that everyone else knows,” said Chesky, 32. “On Airbnb, everyone has an identity.”

You can’t rent a room from someone or to someone unless you create a profile. And the more information you put into your profile — license, passport, Facebook page and reviews of people who have stayed with you — the more customers are likely to come. And the better reputation you earn from reviews, “the more other people want to work with you,” Chesky added. “All the social friction because of a lack of trust gets removed.” In the process, “you unlock all this value and the world starts to feel like a community again.”

But what happens to “ownership?”

“There used to be a romanticism about ownership, because it meant you were free, you were empowered,” Chesky answered. “I think now, for the younger generation, ownership is viewed as a burden. Young people will only want to own what they want responsibility for. And a lot of people my age don’t want responsibility for a car and a house and to have a lot of stuff everywhere. What I want to own is my reputation, because in this hyperconnected world, reputation will give you access to all kinds of things now. … Your reputation now is like having a giant key that will allow you to open more and more doors. [Young people] today don’t want to own those doors, but they will want the key that unlocks them” — in order to rent a spare room, teach a skill, drive people or be driven.

But what will this mean for traditional jobs?

Today, said Chesky, “you may have many jobs and many different kinds of income, and you will accumulate different reputations, based on peer reviews, across multiple platforms of people. … You may start by delivering food, but as an aspiring chef you may start cooking your own food and delivering that and eventually you do home-cooked meals and offer a dining experience in your own home.” Just as Airbnb was “able to find use for that space you never found use for, it will be the same for people. That skill, that hobby that you knew was there but never used it,” the sharing economy will be able to monetize it.

How fast that happens will depend, in part, on regulators and tax collectors in different cities — not all of whom like people turning their spare bedrooms into hotels or their kitchens into pop-up restaurants. The sharing economy can complement the existing one, and make the pie bigger. But the bigger the Ubers and Airbnbs get, the more incumbents will resist them. This will be a struggle between the 20th-century economy and the 21st’s.

The 20th-century economy was powered by big corporations that standardized everything because they never really knew their customers, argued Chesky. “The 21st-century economy will be powered by people” — where the buyers all have identities and the producers all have personal reputations — “so I will be able to sell something directly to you and delight you and surprise you, and the selection you’ll be able to choose from won’t be 4 but 4,000,000.”

I don’t know if that’s how it will play out, but given Airbnb’s rapid growth, Chesky’s argument definitely has my attention.

And don’t forget that you’re supposed to take your gently used designer duds to the consignment shop…  Here’s Mr. Kristof:

With Israeli troops again invading Gaza and the death toll rising, some of the rhetoric from partisans on each side is oddly parallel. Maybe it’s time to correct a few common misconceptions among the salvos flying back and forth.

This is a struggle between good and evil, right and wrong. We can’t relax, can’t compromise, and we had no choice but to act.

On the contrary, this is a war in which both peoples have a considerable amount of right on their sides. The failure to acknowledge the humanity and legitimate interests of people on the other side has led to cross-demonization. That results in a series of military escalations that leave both peoples worse off.

Israelis are absolutely correct that they have a right not to be hit with rockets by Hamas, not to be kidnapped, not to be subjected to terrorist bombings. And Palestinians are absolutely right that they have a right to a state, a right to run businesses and import goods, a right to live in freedom rather than relegated to second-class citizenship in their own land.

Both sides have plenty of good people who just want the best for their children and their communities, and also plenty of myopic zealots who preach hatred. A starting point is to put away the good vs. evil narrative and recognize this as the aching story of two peoples — each with legitimate grievances — colliding with each other.

Just because the underlying conflict is between two peoples who each have plenty of right, that’s not to say that there are no villains. Hamas is violent, not only toward Israel, but toward its own people, and, in contrast to Israel, it doesn’t seem to try to minimize civilian casualties — its own or Israel’s. Hamas is not as corrupt as the Palestinian Authority, but it is far more repressive, and my impression from my visits to Gaza is that it’s also unpopular at home. Hamas sometimes seems to have more support on certain college campuses in America or Europe than within Gaza.

Meanwhile, the Israeli right undermines the best partner for peace Israel has had, President Mahmoud Abbas of the Palestinian Authority, and Israel’s settlements are a gift to Palestinian extremism. These days, in both Gaza and Jerusalem, hawks are in charge, and they empower each other.

The other side understands only force. What else can we do but fight back when we are attacked?

Israeli leaders, starting with Prime Minister Benjamin Netanyahu, think that the way to protect their citizens is to invade Gaza and blow up tunnels — and, if Gazan civilians and children die, that’s sad but inevitable. And some Gazans think that they’re already in an open-air prison, suffocating under the Israeli embargo, and the only way to achieve change is fire rockets — and if some Israeli children die, that’s too bad, but 100 times as many Palestinian children are dying already.

In fact, we’ve seen this movie before: Israel responded to aggression by invading Lebanon in 1982 and 2006, and Gaza in 2008; each time, hawks cheered. Yet each invasion in retrospect accomplished at best temporary military gains while killing large numbers of innocents; they didn’t solve any problems.

Likewise, Palestinian militancy has accomplished nothing but increasing the misery of the Palestinian people. If Palestinians instead turned more to huge Gandhi-style nonviolence resistance campaigns, the resulting videos would reverberate around the world and Palestine would achieve statehood and freedom.

Some Palestinians understand this and are trying this strategy, but too many define nonviolence to include rock-throwing. No, that doesn’t cut it.

What would you do if your family were in Gaza/Israel, at risk of being killed. You wouldn’t just sit back and sing ‘Kumbaya,’ would you?

If any of us were in southern Israel, frightened sick by rockets being fired by Hamas, we, too, might cheer an invasion of Gaza. And if any of us were in Gaza, strangled by the embargo and losing relatives to Israeli airstrikes, we, too, might cheer the launch of rockets on Tel Aviv. That’s human nature.

That’s why we need to de-escalate, starting with a cease-fire that includes an end to Hamas rocket attacks and a withdrawal from Gaza by Israel. For Israel, this is a chance to use diplomacy to achieve what gunpowder won’t: the marginalization of Hamas. Israel might suggest an internationally supervised election in Gaza with the promise that the return of control to the Palestinian Authority would mean an end to the economic embargo.

Here we have a conflict between right and right that has been hijacked by hard-liners on each side who feed each other. It’s not that they are the same, and what I see isn’t equivalence. Yet there is, in some ways, a painful symmetry — and one element is that each side vigorously denies that there is any symmetry at all.


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